Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/258459 
Year of Publication: 
2021
Citation: 
[Journal:] Journal of Risk and Financial Management [ISSN:] 1911-8074 [Volume:] 14 [Issue:] 8 [Article No.:] 355 [Publisher:] MDPI [Place:] Basel [Year:] 2021 [Pages:] 1-19
Publisher: 
MDPI, Basel
Abstract: 
Options paying the product of put and/or call option payouts at different strikes on two underlying assets are observed to synthesize joint densities and replicate differentiable functions of two underlying asset prices. The pricing of such options is undertaken from three perspectives. The first perspective uses a geometric two-dimensional Brownian motion model. The second inverts two-dimensional characteristic functions. The third uses a bootstrapped physical measure to propose a risk charge minimizing hedge using options on the two underlying assets. The options are priced at the cost of the hedge plus the risk charge.
Subjects: 
acceptable risks
distorted expectations
fast Fourier transform
multivariate bilateral gamma
JEL: 
G10
G11
G12
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article

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